Alabama Supreme Court sides with Jefferson County in 1 percent sales tax ruling

The Alabama Supreme Court on Friday ruled in favor of Jefferson County in a lawsuit over the county’s plan to replace a 1 percent sales tax for schools with a 1 percent sales tax that benefits both schools and other projects in the county.

County officials have said the plan, unveiled in 2015, is essentially a refinancing of the nearly $600 million worth of debt left out of a $1 billion Jefferson County bond issue in 2004 and 2005.

However, it also would be an extension of the sales and use tax that was approved to pay off the bonds, and it would allow the county to spend some of the money on projects not related to schools.

When county officials asked Jefferson County Judge Mike Graffeo to validate the revamping of the tax, a group of Jefferson County taxpayers objected, saying an act of the legislature that allows for the revamped sales and use tax is unconstitutional.

The taxpayers argued the act was improperly passed by the legislature due to a procedural issue, and Graffeo agreed, voiding the law. Jefferson County appealed the case and in November 2016 was successful in getting a statewide constitutional amendment passed that retroactively made the procedural issue a moot point.

However, the taxpayers also argued that the law was unconstitutional because it violated a general state law that required sales tax proceeds to be used for educational purposes only.

The new Jefferson County local law would allow the county to, after making its new bond payments, spend an estimated $42 million on non-educational purposes, including $36 million to the county’s general fund, $3.6 million to a fund for projects recommended by legislators from Jefferson County, $2 million to the Birmingham-Jefferson County Transit Authority and $500,000 to the Birmingham Zoo. An estimated $18 million a year would be split up among school districts in Jefferson County based on enrollment.

The taxpayers also argued that the new Jefferson County debt required a vote of the people and that the law improperly authorized liens in relation to collection of the tax.

County officials argued that the legislature has unabridged power to allow local governments to levy sales and use taxes by local laws and has given broad powers to counties regarding the administration and collection of sales and use taxes.

The county also argued that the law didn’t authorize the debt itself but instead authorized the county to levy sales taxes and pledge the proceeds as security for the debt.

Finally, the taxpayers argued that the county failed to have a public hearing on the bond issue, but county officials said that hearing is not required until the county is ready to enter a “binding agreement” to issue the debt. That hearing will come later, they said.

The Supreme Court on Friday ruled in favor of the county on all the issues, prompting county commissioners and legislators to hold a press conference to celebrate the victory.

Jefferson County Manager Tony Petelos said in an interview later that the ruling is a great step forward for a county that is recovering from financial turmoil that included bankruptcy and the loss of an occupational tax that provided $70 million a year.

The county has made great strides in streamlining its operations, but the cuts have gone too deep, Petelos said. The county dropped from about 4,000 employees to about 2,000 employees and now probably needs to hire 250 to 300 people to provide much-needed services, he said. “We’ve been struggling.”

The estimated $36 million the county’s general fund would receive from the debt restructuring will allow the county to address road and transportation needs that have been neglected and pump money into economic development projects, Petelos said.

“We hope that there aren’t any more challenges and we’ll be able to move forward,” he said.

The county still must go back to Graffeo to get the tax plan validated before proceeding with a public hearing and going to the financial markets to issue the new debt.

Efforts to reach the taxpayers who objected to the revised tax plan in court so far have been unsuccessful.